“As things stand, the banks are the permanent government of the country, whichever party is in power.” – Lord Skidelsky, House of Lords, UK Parliament, 31 March 2011

On March 20, 2014, European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins” – the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability into place before the dire state of Eurozone banks is exposed.

The prospect of starting a county-owned bank generated contentious debate during the Luzerne County Council meeting Tuesday night, with several members of the public questioning its feasibility.

Council Vice Chairman Edd Brominski has suggested creating a public bank to alleviate the county’s massive debt. He hosted a breakfast seminar Monday morning in which Mike Krauss, a director of the Public Banking Institute, said such a facility could help reduce government debt and slash interest rates while keeping county money local.

The bank would assist local banks with capital for loans and would not compete with them, Krauss said. Krauss suggested money that has been “squirreled away,” such as pension funds, could fund the endeavor.

That has been a sticking point.

Kevin O’Brien, a former deputy director of the Luzerne County Emergency Management Agency, questioned Tuesday whether it would be legal to use pension funds in such a manner and whether shareholders would have a say.

“What I’m concerned about is my investment in the pension fund,” O’Brien said. “I worked for this county for 30 years and I enjoy my retirement.”

County solicitor David Pedri noted the concept is in its early stages but said any borrowing from the pension fund would have to be approved by the Luzerne County Retirement Board.

Creating a county-owned bank could reduce government debt, slash interest rates and even be a source for immediate emergency funding during floods, according to the Pennsylvania Public Bank Project.

Mike Krauss, a director of the Public Banking Institute and the project’s chairman, told a group of local leaders, including several Luzerne County Council members, during a breakfast meeting Monday morning that a public bank would be a “banker’s bank” that would not compete with local banks.

“The main function of the kind of bank we’re proposing is to partner with local banks,” Krauss said. “It is not a retail bank. It does not compete with the local banks, and because it doesn’t do that, it has a very low cost overhead.”

Council Vice Chairman Edd Brominski organized the event at the Best Western Genetti Hotel and Conference Center as part of a fact-finding mission to begin a financial recovery for the county, which is more than $400 million in debt.

]]>https://publicbanking.wordpress.com/2014/03/31/county-owned-bank-could-ease-money-issues/feed/0Ellen BrownBookmark and ShareThe truth is out: money is just an IOU, and the banks are rolling in ithttps://publicbanking.wordpress.com/2014/03/22/the-truth-is-out-money-is-just-an-iou-and-the-banks-are-rolling-in-it/
https://publicbanking.wordpress.com/2014/03/22/the-truth-is-out-money-is-just-an-iou-and-the-banks-are-rolling-in-it/#commentsSat, 22 Mar 2014 05:34:00 +0000http://publicbanking.wordpress.com/?p=2377]]>David Graeber • theguardian.com • March 18, 2014

The Bank of England’s dose of honesty throws the theoretical basis for austerity out the window

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn’t know how banking really works, because if they did, “there’d be a revolution before tomorrow morning”.

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy“, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

Want to end recessions, reduce inequality, prevent fraud and help immigrants? It’s time to install postal banking

Ever since the inspector general of the US Postal Service authored a white paper endorsing the concept of postal banking, more advocates and policymakers have become intrigued. Postal banking is actually an old idea: Dozens of countries offer simple financial services through their posts, and here in America, Postal Savings Accounts served millions of customers from 1911-1967 (the post office still sells money orders today). But it could also fix a number of our current problems simultaneously, even ones you haven’t thought about. Here are 10 different applications of postal banking, in order from most to least obvious:

]]>https://publicbanking.wordpress.com/2014/03/22/how-usps-could-save-the-economy-change-your-life/feed/1Ellen BrownBookmark and ShareWhat North Dakota’s Public Bank Does for Small Businesseshttps://publicbanking.wordpress.com/2014/03/14/what-north-dakotas-public-bank-does-for-small-businesses/
https://publicbanking.wordpress.com/2014/03/14/what-north-dakotas-public-bank-does-for-small-businesses/#commentsFri, 14 Mar 2014 08:16:54 +0000http://publicbanking.wordpress.com/?p=2370]]>Robb Mandelbaum • New York Times – Small Business Blog • March 6, 2014

…Mr. Brasch visited his local bank, Alerus Financial, based in Grand Forks, and came away with a financing package that would be unusual anywhere but North Dakota, which operates the country’s only public bank. The state-owned Bank of North Dakota helped finance the loan — and also used state money to buy down the interest rate, from 5.25 percent to 1 percent.

North Dakota uses the bank to funnel deposits from state agencies back into the state’s economy through a variety of loan and other development programs. Mostly it makes loans, teaming with local private banks that initiate the transactions with borrowers. The state-owned bank typically takes half of a business loan, and the interest rate on the state-lent portion is normally one or two percentage points below the market rate.

On the first Tuesday of March, communities across Vermont hold town meetings at which they elect local officials, approve the coming year’s budget and vote on measures announced in advance.

This week, 19 Vermont cities and towns voted on a measure calling for the Vermont Economic Development Authority, a statewide finance lender created in 1974, to be turned into a public bank. Fifteen approved the notion.

In January, state Sen. Anthony Pollina (D) and five other progressive state lawmakers had introduced legislation to advance the proposal. Senate Bill 204 would direct the state government to deposit 10 percent of its unrestricted funds in a public VEDA bank, which could then leverage the money in the same manner as private banks do.

(1) create statutorily the 10 Percent for Vermont Program within the Vermont Economic Development Authority for the purpose of establishing a banking system owned, controlled, and operated by the State of Vermont;

(2) amend the statutory authority of the Vermont Economic Development Authority to permit it to engage in the business of banking; and
(3) direct the State Treasurer to transfer 10 percent of the State government’s cash reserves to the 10 Percent for Vermont Program for initial funding.

The pilot program would partner with local private banks to offer loans and boost economic development “by increasing access to capital for businesses in the State,” according to the legislative text. VEDA is currently financed by legislatively appropriated funding, bonds and other means.

When the prairie populists of the North Dakota Non-Partisan League swept to power a century ago, with their promise to take on the plutocrats, one of the first orders of business was the establishment of state-run bank.

They did just that. And in just a few years the Bank of North Dakota will celebrate a 100th anniversary of assuring safe stewardship of state funds, providing loans at affordable rates and steering revenues toward the support of public projects.

After the 2008 financial meltdown, and the failure of Congress to regulate “too-big-to-fail” banks, activists and progressive legislators across the country began to explore the idea of replicating—or even expanding upon—the North Dakota model in other states.

By a more than three-to-one margin on Tuesday, communities voting on whether to support the creation of a public bank in Vermont approved the idea, calling for the state legislature to establish such a bank and urging passage of legislation designed to begin its implementation.

In a show of direct democracy that also exposed the citizenry’s desire for a more localized and responsible banking system, fifteen of nineteen towns passed the resolution during ‘Town Meeting Day’— an annual event in which voters choose local officials, approve municipal budgets, and make their voices heard on a number of measures put before local residents for approval.

The specific proposal under consideration, Senate Bill 204, would turn an existing agency, the Vermont Economic Development Authority, into a public bank that would accept deposits and issue loans for in-state projects. Currently, the only state in the U.S. to maintain a public state bank is North Dakota. However, since the financial downturn of 2008, other states have looked into replicating the North Dakota model as a way to buck Wall Street while taking more control of state and local finances.

It seems like an idea whose time has come. With one in four American households partially or entirely excluded from the current banking system, and with the U.S. Post Office in search of additional revenue, why not use the postal system to offer banking services to lower-income households?

In fact, this is an idea whose time has already come, more than once. Many nations — among them Great Britain, Japan, Germany, Israel, and Brazil — provide or have provided some form of postal banking services. So did the United States, until 1966.

It’s hardly a radical idea. The U.S. system was voted into law in 1910, during the presidency of William Howard Taft. In any case, a better way to describe it would be as a beginning.

What better way to start a much-needed transformation of our financial sector than by providing services to those communities the financial industry refers to as the “unbanked”? Right now those communities are routinely victimized by predatory payday lenders. As we first reported in 2010,

“Studies have shown that payday lenders disproportionately exploit minority neighborhoods with loans that are issued at an average annual interest rate of 455%. The average number of loan each borrower takes out is nine per year, according to one study, as these high rates lead to a cycle of indebtedness.”

Sen. Elizabeth Warren has endorsed the postal-banking concept, which David Dayen describes in more detail here. As Sen. Warren wrote recently, “if the Postal Service offered basic banking services — nothing fancy, just basic bill paying, check cashing and small-dollar loans — then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing.”

The report that stimulated all this new discussion was written by the Post Office’s Inspector General, and it makes a compelling case.